Iowa income tax relief unlikely in 2013

Republicans are for it, but Branstad focusing on property taxes

DES MOINES — Legislative Republicans hoping to champion state income tax cuts for Iowa taxpayers during the 2013 session that begins Jan. 14 could face an uphill battle convincing Democrats and even GOP ally Gov. Terry Branstad, who has said the first and foremost focus must be on property tax relief.

Iowa policymakers open talks on a new budgeting cycle in the enviable position of having a potential ending balance hovering around $800 million when the current fiscal year ends June 30.

However, suggestions for how the split-control Legislature can spend that money are piling up in competition with GOP campaign promises to return surplus revenues they view as overcharges on individuals and employers that curb productivity and creativity needed to grow the economy.

Branstad stood with top GOP leaders from the Iowa House and Iowa Senate on the 2012 campaign trail in support of “Iowa Strong” initiatives that included cutting commercial/industrial property tax burdens, capping increases for residential and agricultural property owners, and reducing individual and corporate income tax rates to keep more income in Iowans’ pockets and help entrepreneurs to better compete and invest in Iowa.

Branstad’s agenda

However, the governor is formulating an ambitious 2013 agenda that includes reducing and revamping property taxes; reforming education by paying beginning teachers more, strengthening teacher preparation, changing school funding formulas and taking other steps to improve student performance; and meeting budget demands in areas of health care, public safety and federal cutbacks that will be pricey even if they are spread over multiple years to accomplish.

Asked during a recent interview if there was room in all that for income tax reductions during the 2013 session, Branstad replied: “Probably not. Honestly, property tax would be my priority and I’d love to do income tax, too, and maybe, if revenues exceed expectation, we could provide some income tax relief in addition. But I think I would rather focus and get something permanent done on the property tax. That’s the place where we’re the least competitive.”

During the 84th General Assembly, when Republicans held a 60-40 edge in the Iowa House, they passed a 20 percent across-the-board income tax cut that would have reduced the top rate for individuals from 8.98 percent to 7.18 percent and provided $683.3 million of relief in the first year of implementation.

Results of the 2012 election cut the House GOP majority to 53-46 pending a Jan. 22 special election in House District 52 to replace resigning Rep. Brian Quirk, D-Hampton, and Democrats managed to keep their 26-24 plurality in the Iowa Senate. But Republicans still hope to make a run at providing some income tax relief when lawmakers reconvene Jan. 14.

“We’re very interested in figuring out how we can leave more money in the pockets of Iowans so that they can drive Iowa’s economy,” said House Speaker Kraig Paulsen, R-Hiawatha. “State government is not the economic engine of this state. That’s Iowans.”

Lawmakers created a special “taxpayers first” account that will grow to $120 million. Branstad said his preference is to use that as part of a bipartisan property tax compromise. But if there’s money available after a multiyear plan to provide property tax relief is devised, he would be open to returning that money to taxpayers possibly as a one-time rebate similar to what former Gov. Robert D. Ray once offered.

In October, Branstad indicated he was exploring the option of giving Iowa taxpayers the choice of deducting the federal taxes they paid from their state tax liability as is the current law or instead paying based on a lower, flat state income tax rate.

Senate Majority Leader Mike Gronstal, D-Council Bluffs, said he would need more details but at first blush he doubted it would go very far in the legislative process if it proved to be “just a way for the wealthiest Iowans to cut their taxes dramatically” while middle-class families picked up a greater share of the tab for the cost of state government.

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